{"id":8658,"date":"2015-05-31T07:51:25","date_gmt":"2015-05-31T12:51:25","guid":{"rendered":"http:\/\/olduvai.ca\/?p=8658"},"modified":"2015-05-31T07:51:25","modified_gmt":"2015-05-31T12:51:25","slug":"how-much-more-extreme-can-markets-get","status":"publish","type":"post","link":"https:\/\/olduvai.ca\/?p=8658","title":{"rendered":"How Much More Extreme Can Markets Get?"},"content":{"rendered":"<h3><span class=\"Apple-style-span\"><i><b><a href=\"http:\/\/www.oftwominds.com\/blogmay15\/extremes5-15.html\" target=\"_blank\">How Much More Extreme Can Markets Get?<\/a><\/b><\/i><\/span><\/h3>\n<p><span class=\"Apple-style-span\"><i>These charts help us understand that a top is not just price, but a reversal in extremes of margin debt, valuation and sentiment.<\/i><\/span><\/p>\n<p><b>In blow-off tops, extremes of valuation, complacency and margin debt can always shoot beyond previous extremes to new extremes.<\/b>\u00a0This is why guessing when the blow-off top implodes is so hazardous: extreme can always get more extreme.<\/p>\n<p><b>Nonetheless, extremes eventually reverse, and generally in rough symmetry with their explosive rise.<\/b>\u00a0Exhibit 1 is margin debt:\u00a0<a href=\"http:\/\/www.advisorperspectives.com\/dshort\/updates\/NYSE-Margin-Debt-and-the-SPX.php\" target=\"resource\">NYSE Margin Debt Hits a New Record High<\/a>\u00a0(Doug Short)<\/p>\n<p>Note the explosive rise in margin debt in the past few months:<\/p>\n<p><img decoding=\"async\" src=\"http:\/\/www.oftwominds.com\/photos2015\/margin-debt5-28-15.png\" alt=\"\" align=\"center\" border=\"0\" \/><\/p>\n<p><b>At tops, soaring margin debt no longer pushes stocks higher.<\/b>\u00a0I&#8217;ve marked up an excellent chart by Doug Short to highlight the diminishing returns of more margin debt at tops.<\/p>\n<p><img decoding=\"async\" src=\"http:\/\/www.oftwominds.com\/photos2015\/margin-debt-SPX95-15.gif\" alt=\"\" align=\"center\" border=\"0\" \/><\/p>\n<p>It&#8217;s clear this same dynamic of diminishing returns is in play now, as margin debt has skyrocketed while the S&amp;P 500 has remained range-bound, with each new high being increasingly marginal.<\/p>\n<p><b>Exhibit 2 is China&#8217;s Shenzhen stock exchange.<\/b>\u00a0The price-earnings ratio (PE) is a useful gauge of sentiment: when sentiment reaches extremes of euphoria, PEs go through the roof:<\/p>\n<p>&nbsp;<\/p>\n<p>&#8230;click on the above link to read the rest of the article&#8230;<\/p>\n","protected":false},"excerpt":{"rendered":"<p>How Much More Extreme Can Markets Get? These charts help us understand that a top is not just price, but a reversal in extremes of margin debt, valuation and sentiment. In blow-off tops, extremes of valuation, complacency and margin debt can always shoot beyond previous extremes to new extremes.\u00a0This is why guessing when the blow-off [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[2],"tags":[127,4426,500,5893,5891,506,5894,4406,4924,1138,5892],"class_list":["post-8658","post","type-post","status-publish","format-standard","hentry","category-economics","tag-charles-hugh-smith","tag-margin-debt","tag-market-collapse","tag-market-complacency","tag-market-extreme","tag-markets","tag-new-york-stock-exchange","tag-nyse","tag-oftwominds","tag-stock-market","tag-valuation"],"_links":{"self":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/8658","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=8658"}],"version-history":[{"count":1,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/8658\/revisions"}],"predecessor-version":[{"id":8659,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/8658\/revisions\/8659"}],"wp:attachment":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=8658"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=8658"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=8658"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}